South Korea’s IPO bust clouds equity markets

South Korea’s stock IPO activity has fallen this year as efforts to boost corporate valuations have been plagued by governance reforms and a high concentration of chaebol, or family-run, conglomerates.

South Korea saw 15 new listings in the year to June 3, with revenues totaling nearly $700 million, according to LSEG data. By comparison, the data shows that between 2020 and 2025, an average of 80 new listings occurred annually, amounting to approximately $8 billion. Malaysia’s new listings and revenues are almost twice that of South Korea.

In contrast, Kospi is the best-performing major index worldwide., It had more than doubled in value in the year through Monday.

Chaebols, once at the center of South Korea’s industrial development, have now become “a hindrance rather than a helper to the creation of new independently listed champions,” according to Polka Mishra, partner at Javelin Wealth Management in Singapore. South Korea’s 50% inheritance tax on amounts exceeding 3 billion won ($2 million) gives conglomerates an incentive to keep valuations and free float low, he said.

Topic: In 2024, South Korea launched its “Corporate value enhancement initiative” to end the “Korean discount”, where stocks trade at lower levels than their overseas counterparts. The country has made three rounds of amendments to the Commercial Code to improve minority shareholder protection and corporate governance.

The five largest conglomerates (Samsung, SK, Hyundai Motor, LG and HD Hyundai) accounted for nearly 70% of South Korea’s stock market value as of Monday, according to Korea Exchange data.

Korea Exchange CEO Jeong Eun-bo told CNBC on June 11 that parent-subsidiary listings, which refer to a unit following its own listing, “will be prohibited as a general principle.” These can be seen as diluting the value of the parent company at the expense of minority shareholders, while allowing controlling families to retain control over the newly listed subsidiary.

These shares, measured by the value of cross-shares between publicly traded parent companies and their subsidiaries, accounted for about 11% of South Korea’s total market capitalization as of last year, compared with about 4% in Japan and 3% in Taiwan, according to the Financial Services Commission.

The South Korean market operator plans to delist about 300 companies by next year and direct capital to new companies, Korea Exchange’s Jeong said.

Jeong said the Korea Exchange quickly removed bankrupt companies from the market while encouraging new listings. Ultimately, “so we can eliminate unfair trading practices and expand the reach of startups looking to get listed.”

Lee Hyo-seob, a senior research fellow at the Korea Capital Market Institute think tank in Seoul, said that while the decline in figures boosted valuations of parent companies, the slowdown negatively affected the fundraising and exit environment for venture capital funds.

Jungik Park, EY’s South Korea IPO leader, said the slowdown in IPOs shows the market is “transforming into a more selective, quality-focused market, with capital increasingly concentrated in narrower sectors and issuers.”

Park said there are currently a “large number” of publicly traded companies in South Korea, around 2,700 in total. Although South Korea’s stock market capitalization is only a fraction of that of the United States, it is roughly half the figure in the United States.

Limited IPO activity in South Korea is a double-edged sword for the broader capital market, said Lee of the Korea Capital Market Institute.

Fewer parent-subsidiary listings have boosted parent companies’ valuations, but the slowdown has negatively impacted the fundraising and exit environment for venture capital funds, Lee said.

Still, the decline in IPOs reflects a transitional phase in the country’s efforts to boost corporate valuations, Korea Exchange’s Jeong said.

“I expect companies to move more actively in their listing processes once the government issues clearer guidelines on parent-subsidiary listings,” he said.

Going forward, analysts expect AI infrastructure companies to make up the bulk of South Korea’s IPO pipeline, reflecting the country’s strong position in the chip sector led by Samsung Electronics and SK Hynix.

“Semiconductor and AI data centers require huge capital expenditures and long-term capital deployment, which means private capital is limited in what it can do on its own,” Kang Jin-hyuk, a senior analyst at Shinhan Securities, said in a report published May 22. he said.

“Ultimately, the role of public financing and industrial financial support in the growth of Korea’s AI industry is becoming more important,” Kang said. He cited the government-led National Growth Fund’s investment of around $130 million each in AI chip startups Rebellions and FuriosaAI.